Realist, not conformist analysis of the latest financial, business and political news

We Already Can’t Afford The Welfare State We’ve Promised Ourselves

Another reminder of the sad and basic fact that we cannot afford the welfare state that we’ve already promised ourselves. The ageing of the population through that demographic shift means that all the things we gleefully voted for decades back, and didn’t pay for, now do have to be paid for. And as it turns out we’re not paying enough in tax for those things we did vote for.

The implication of this should be obvious. We can’t and won’t have any extension to that welfare state on the grounds that we’re not even willing to pay the bill for what we already think we’ve got. Here it’s local council finances:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] David Phillips, an associate director at the IFS, said: “Current plans for councils to rely on council tax and business rates for the vast bulk of their funding don’t look compatible with our expectations of what councils should provide.” The shifting demands of an ageing population mean the current 3% cap on annual council tax rises would mean adult social care would require 60% of local tax revenues within 15 years, up from 38% now, according to the report. Phillips said a national debate was required on how much citizens would be willing to pay for services. [/perfectpullquote]

Well, how much are we willing to pay? Currently tax revenue is some 34% of GDP. That’s an historical high for this country. We can’t go and tax the rich more, we’re already at that Laffer Curve peak if not a little over it. We definitely tax the poor too much – just look at the taper on Universal Credit, 60% or so as a marginal rate. Corporations don’t pay tax, only people do. There’s not really some God in the Machine to provide the extra revenue.

But we have promised ourselves all those nice things. Social care in old age for example. Sure, good thing to have, certainly don’t want to return to the days when the elderly childless died and rotted in their garrets.

But we do still face this basic fact. We’re not willing to pay for what we’ve already promised ourselves, voted for. Thus there’s no real possibility of an extension of that welfare state, is there?

Oh, and all those people shouting that we’ve got to raise taxes because….what they are indeed therefore saying is that we can’t afford the welfare state we’ve already got, aren’t they? That’s exactly why they are shouting that we’ve got to raise tax. Because we were promised things but didn’t agree to pay for them at the time.

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Matt Ryan
Matt Ryan
2 years ago

What’s wrong with the state printing money in it’s own currency and using that to fund the welfare state?

If it causes a bit of inflation we can then increase taxes to remove that inflationary pressure.

This idea came from a Professor so I’m sure he’s done the sums 😎

Nigel Sedgwick
2 years ago

PART 1 —— [I posted this comment, seemingly successfully, at 09:18; shortly before 11:25 it disappeared. In case this is a length issue with Disqus, I am reposting in parts.] Tim writes under the title: “We Already Can’t Afford The Welfare State We’ve Promised Ourselves”. There is IMHO a fair degree of truth in this statement. However, it is by no means the whole story. I expand below. Firstly, Tim then writes: “The ageing of the population through that demographic shift means that all the things we gleefully voted for decades back, and didn’t pay for, now do have to… Read more »

Reform_the_NHS
Reform_the_NHS
2 years ago
Reply to  Nigel Sedgwick

Indeed, on average, the NHS spends as much on someone’s last 6 months as it did for the rest of their life… Not sure if that’s sensible.

Nigel Sedgwick
2 years ago

PART 2 —— Secondly, the ‘cost to society’ of the ‘aged’ issue is affected by the proportion of people deemed beyond working age. And particularly that proportion of people who have not (for some reason) made adequate financial provision for those years between entering retirement and entering those last three or so years of life. This is the period for which the extent is increasing; and it is a period for which funding is not increasing in adequate proportion; and the latter issue is one with cause that falls largely to government (though some potentially useful steps on increasing the… Read more »

FreedomFr
FreedomFr
2 years ago

The welfare state seems to be in crisis everywhere. What seems to be the problem. Is it that its no longer compatible with the goals of morden societies??

Reform_the_NHS
Reform_the_NHS
2 years ago
Reply to  FreedomFr

It never was. It’s a Ponzi scheme. Hence the efforts now to import vast numbers from elsewhere. But they include vast numbers of the low skilled, so will make the problem worse…

Pat
Pat
2 years ago

Once upon a time care was primarily provided by the family, and elderly care by children. Setting up the welfare state involved the care coming from all those families being shared in common. Hence one incentive to have a family was removed, as the costs fell on the parents but the benefits were shared. Hence the decline in families and birthrates. I find with most socialist ideas an attempt to scale up ways of life that work fine at the scale of a family, even an extended one with some personal friends thrown in, but do not work when scaled… Read more »

Climan
Climan
2 years ago

Whenever the subject of income is raised I like to think about consumption, because it is consumption that defines the wealth (and debt) of a country. You could argue that the state pension should not be universal, because many retired people don’t need it, but what difference would its removal make? Consumption would not change by very much, but people would leave less money in their wills, which would also have little impact on consumption. If a country consumes more than it produces then the exchange rate and other variables will adjust to remove the imbalance, so I guess I’m… Read more »

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